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Friday, March 15, 2013

DOI Findings On Shell's 2012 Arctic Exploration Operations

Mar 14: Outgoing Department of Interior (DOI) Secretary Ken Salazar announced the findings of a Departmental review of Shell's 2012 Arctic operations, which will help guide the conduct and oversight of future Arctic exploration. In January, Secretary Salazar directed a high-level review of Shell's 2012 offshore drilling program in the Beaufort and Chukchi Seas -- including the company's preparations for last year's drilling season and its maritime and emergency response operations -- to identify challenges and lessons learned. The review focused on Shell's inability to obtain certification of its containment vessel, the Arctic Challenger, on a timely basis; the deployment difficulty of the Arctic Challenger's containment dome; and serious marine transport issues associated with both of Shell's two drilling rigs, the Noble Discoverer and the Kulluk, including the grounding of the Kulluk off Kodiak Island during a towing operation. On February 27, 2013, Shell announced it has decided to pause its exploration drilling activity for 2013 in the Beaufort and Chukchi Seas to focus on preparation of equipment and plans before resuming its Arctic exploration program. [See WIMS 2/28/13].

Secretary Salazar said, "Exploration in the Arctic is a key component of the President's all-of-the-above energy strategy, and is important to our understanding of the oil and gas potential in this frontier region. We have said all along that exploration in the challenging and sensitive environment of the Arctic must be done cautiously and subject to the highest safety and environmental standards. This assessment took a close look at Shell and the problems they encountered offshore Alaska last year, and makes important recommendations that Shell should follow as it resumes its Arctic program."

The review team, led by Principal Deputy Assistant Secretary for Land and Minerals Management Tommy Beaudreau, included senior staff from several bureaus at DOI as well as other Federal agencies. The review team met with representatives from Shell as well as key contractors that Shell retained for work related to its Alaska operations, the State of Alaska, the Mayor of the North Slope Borough, and the Arctic Slope Regional Corporation. The review team also sought information from a broad range of other stakeholders and experts, including representatives from the oil and gas and maritime industries and conservation non-governmental organizations. The Department retained the international consulting firm PricewaterhouseCoopers LLP (PwC) to provide expertise and support in reviewing issues related to safety and operational management systems.

The assessment found that Shell entered the 2012 drilling season without having finalized key components of its program, including its Arctic Challenger containment system, which put pressure on Shell's operations and schedule and limited Shell from drilling into oil-bearing zones last summer. Weaknesses in Shell's management of contractors on whom they relied for many critical aspects of its program -- including development of its containment system, emission controls to comply with air permits, and maritime operations -- led to many of the problems that the company experienced.

Beaudreau said, "Shell simply did not maintain strong, direct oversight of some of its key contractors. Working in the Arctic requires thorough advance planning and preparation, rigorous management focus, a close watch over contractors, and reliance on experienced, specialized operators who are familiar with the uniquely challenging conditions of the Alaskan offshore. In some areas Shell performed well, but in other areas they did not, and Alaska's harsh environment was unforgiving."

The report recommends that the company should submit to the Department a comprehensive, integrated plan describing every phase of its operation from preparations through demobilization. The report also recommends that Shell complete a full 3rd-party management system audit that will confirm that the company's management systems are appropriately tailored for Arctic conditions and that Shell has addressed the problems that it encountered during the 2012 drilling season.

DOI indicates that the report also stresses the critical need for coordination -- across the Federal government and with State and local partners, as well as with companies, local communities and other stakeholders. It notes, as a success of the 2012 season, Shell's extensive efforts to communicate and minimize conflict with Alaska Native communities that rely on the ocean for subsistence use.

Deputy Secretary of the Interior David Hayes, Chair of the Interagency President's Working Group on Domestic Energy Development and Permitting in Alaska said, "We have held Shell to very high standards specific to the Arctic, including the requirement for in-theater subsea containment systems capable of responding in the event of an emergency, and coordinating across the federal government to review and oversee Arctic exploration. The report confirms that we need to continue using a cautious, coordinated approach that adopts specialized practices for conducting drilling and related operations in the Arctic."

In its conclusions, the report reinforces that an Arctic-specific model is necessary, and it recommends continuing work on safety and environmental practices appropriate for the Arctic. Shell's 2012 drilling program was subject to a number of Arctic-specific conditions and standards, such as requiring deployment of subsea containment systems as a prerequisite to drilling into hydrocarbon-bearing zones, limitations on the Chukchi Sea drilling season to provide time for open-water emergency response, a blackout on drilling activity during the subsistence hunts in the Beaufort Sea, and surrounding vessels with pre-laid boom during fuel transfers.

Beaudreau said, "Our findings reinforce the importance of taking a regionally-specific approach to offshore oil and gas exploration the Arctic. We must recognize and account for the unique challenges of this region, which holds significant energy potential, but where issues like environmental and climate conditions, limited infrastructure, and the subsistence needs of North Slope communities demand specialized planning and consideration."

In addition to Interior's report, the U.S. Coast Guard is undertaking a comprehensive marine casualty investigation regarding the recent grounding of the drill rig Kulluk. The Coast Guard also provided technical assistance for the Interior report. James Watson, Director of the Bureau of Safety and Environmental Enforcement said, "We thank the U.S. Coast Guard for their collaboration in support of our report, and look forward to reviewing their findings as well."

U.S. Sen. Lisa Murkowski (R-AK) released a statement saying, "There's a history of safe drilling in Alaska's Arctic waters going back to the 1970s. While Shell's exploratory drilling program maintained that record of safety, they did experience problems with transportation and in other areas that need to be addressed before Shell proceeds. However, I want to review the full report to ensure that stricter oversight is not code for prohibiting access to our resources. Alaska's offshore resources represent one of our greatest opportunities to improve America's energy security, generate badly needed revenue without raising taxes, keep the trans-Alaska oil pipeline operational, and show the way for Arctic exploration around the world." The Senator indicated that the Beaufort and Chukchi seas are estimated to contain 27 billion barrels of oil and 132 trillion cubic feet of natural gas.

Earthjustice President, Trip Van Noppen issued this statement calling the DOI review "disappointing." He said, "It took a season full of mishaps and near misses for the Administration to comprehend the uniqueness of the Arctic region and the conditions the oil industry will have to be able to endure. The report highlights that the industry is not ready to drill in the Arctic Ocean but offers little more than 'recommended undertakings' to address those problems. The report also fails to turn the lens on the Department's own failings in authorizing such an ill-prepared venture.

"Ultimately, we believe this report should be a first step in a much broader effort to revisit the administration's position on drilling in the dangerous and sensitive waters of the Arctic Ocean. DOI should not make new decisions about whether and under what conditions to allow offshore drilling until it has completed a more thorough review. Our country's Arctic offshore oil and gas program was premature and it is imperative that the Administration re-evaluate important development decisions about the Arctic Ocean and the standards that govern those decisions. The initial operations were unprepared and unimpressive. The Arctic Ocean remains one of the most pristine and least understood portions of the planet. Alaska Native communities depend on the Arctic to meet their substantial subsistence food needs. A major oil spill would devastate Arctic marine and coastal resources as the vast majority of the oil could not be recovered."